Overview

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. Our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.

Our financial results depend largely on the volume of our oil and natural gas production and the price we receive for that production. Our production volumes will decline as reserves are depleted unless we invest capital in successful development and exploration activities or acquire properties with existing production. The amount we realize for our production depends predominantly upon commodity prices, which are affected by changes in market demand and supply, overall economic activity, weather, transportation capacity, inventory levels, and other factors. Finding, developing and producing oil and natural gas reserves at economical costs are critical to our long-term success.

When commodity prices decline significantly, our ability to finance our capital budget and operations may be adversely impacted. While we use derivative instruments to provide partial protection against price declines, the total volumes we hedge are less than our expected production, and our liquidity remains susceptible to commodity price fluctuations.

Recent Developments

On December 26, 2024, we entered into a new $162 million term loan facility, which was used to repay our previous term loan. The new facility matures in 2028 and bears interest at a rate of SOFR plus 7.75%. In January 2025, we drew an additional $63 million under this facility.

The new term loan agreement contains certain financial covenants, including requirements to maintain minimum asset coverage, total net leverage, current, and liquidity ratios. We are also required to hedge 85-50% of our anticipated oil and natural gas production over the next four years.

In March 2024, our joint venture acid gas injection facility began processing gas, but has experienced some operational interruptions, resulting in higher processing fees than forecasted.

Capital Resources and Liquidity

As of March 31, 2025, we had $73.6 million in cash and no additional borrowing capacity under our term loan. We generated $6.0 million in net income for the first quarter of 2025 and had $15.4 million in working capital.

Our ability to execute our strategy depends on maintaining adequate liquidity and accessing additional capital as needed. This is influenced by factors such as our success in developing our acreage, growing reserves and production, and finding additional reserves. Sufficient cash is required to fund capital expenditures needed to offset production declines.

In the event our cash flows or costs differ materially from our estimates, we may need to curtail drilling and other activities or pursue strategic transactions to maintain liquidity and meet our debt obligations. We continue to explore ways to reduce expenses, including potentially delisting from the NYSE American and no longer being a reporting company.

Our liquidity is subject to various risks, including commodity price volatility, supply chain issues, and broader economic conditions that could impact oil and gas demand and our ability to comply with debt covenants. We aim to anticipate potential covenant compliance issues and work with lenders to address them proactively.

Cash Flow

For the first quarter of 2025, our cash flow can be summarized as follows:

The increase in operating cash flow was driven by lower operating expenses. Investing cash flow was used primarily for drilling and completion activities. Financing cash flow increased due to the $63 million in additional term loan borrowings in Q1 2025.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies from those described in our 2024 Annual Report.

Results of Operations

Our key operational and financial results for the first quarter of 2025 and 2024 are as follows:

The decrease in revenues was primarily due to lower production volumes, partially offset by higher realized prices. Lease operating expenses decreased on a per-unit basis, while gathering and other expenses declined due to the full-quarter impact of the acid gas injection facility. Depletion expense increased due to higher future development costs. The derivative gain in 2025 contrasted with a significant loss in 2024.

Overall, our first quarter 2025 results demonstrate improved operational efficiency and cost control compared to the prior year period, though production volumes remain a challenge. We continue to focus on developing our Delaware Basin assets while managing our liquidity and debt obligations.